Type of Security Interest Rate 5-Year Treasury Note 5% 5-Year Corporate Bond (High quality) 6%

Type of Security Interest Rate  5-Year Treasury Note 5%  5-Year Corporate Bond (High quality) 6%  5-Year Corporate Bond (Low quality) 8%

Calculate the default risk premium (DRP) on the Corporate bonds. 

SOLUTION PREVIEW

DRP = i - irf

File name Type of Security Interest Rate.xlsx    File type: xlsx  PRICE: $2

If the one-year spot rate is 5% (R1) (APR) and Two-year spot rate is 5.5% (R2) (APR)

If the one-year spot rate is 5% (R1) (APR) and Two-year spot rate is 5.5% (R2) (APR) calculate the one-year rate one-year (Forward rate)(FR1) from today using pure expectations theory.

SOLUTION PREVIEW

FR1 = [(1+Rn)^n/(1+Rn-1)^n-1] - 1

File name If the one-year spot rate is 5%.xlsx    File type: xlsx  PRICE: $2